Highest inflation in 40 years

US consumer price inflation accelerated to a new 40-year high in February as the cost of gasoline, groceries and housing rose and inflation is likely to rise further after Russia's invasion of Ukraine.

The consumer price index rose 7.9% year on year after rising 7.5% in January, according to data from the Labor Department on Thursday. The widely followed inflation index rose 0.8% mom in February on higher fuel, food and housing costs. Both values ​​were in line with the median of forecasts by economists in a Bloomberg poll.

Excluding the volatile food and energy components, so-called core prices rose 0.5% mom and 6.4% yoy.

The data underscores the extent to which inflation was already gripping the economy before the war in Russia led to a spike in commodity prices, including the highest-ever retail price of gasoline. Most economists had expected annual inflation to peak in February, but the conflict likely means inflation will be even higher in the coming months.

"Inflation is unlikely to come down in the next few months," Michael Gapen, chief economist at Barclays Plc, told Bloomberg television. "That is the prerequisite for where we are now. We have to wait and see how long this conflict will drag on and how disruptive the sanctions regime actually is."

To combat mounting price pressures, the US Federal Reserve will hike interest rates next week for the first time since 2018. At the same time, the geopolitical situation is increasing uncertainty about the central bank's rate hike cycle in the coming year.

Fed officials could take a harder stance if energy price shocks lead to higher and more persistent inflation, but they could also take a more cautious approach if falling consumer sentiment and falling real wages weigh on growth as the war drags on.

The February report shows that gasoline prices rose 6.6% month-on-month and accounted for nearly a third of the monthly CPI rise. This could be partly due to the energy price spikes that occurred in the early days of the Russian invasion in the last week of the month. The impact will be more apparent in the March CPI report.

So far this month, the retail price of regular gasoline is up 19.3% to $4.32 a gallon, according to the American Automobile Association.

Food prices rose 1% mom, the fastest since April 2020, the CPI report shows. Compared to February last year, the 7.9% increase was the strongest since 1981.

While the impact of the war on the US economy is still unclear, the rising costs of oil, grains and metals are likely to affect other commodities and ultimately consumer prices. The Biden administration imposed a ban on Russian oil imports to the US on Tuesday, which will add pressure to energy prices.

Wage increases resulting from the tight labor market have not kept pace with inflation. The inflation-adjusted average hourly wage fell 2.6% in February from a year earlier, the sharpest fall since May and the 11th straight fall, separate data showed on Thursday.

The report showed that commodity prices continued to rise in February, while annual growth in the cost of services accelerated. Year-on-year, commodity inflation rose 13%, the fastest since 1980. This includes the strongest annual increase in prices for new cars and trucks ever.

The cost of services rose 4.8% year-on-year, the sharpest increase since 1991.

Housing costs - which are seen as a more structural component of the CPI and make up about a third of the overall index - rose 0.5% mom, the fastest since November. Rents for primary residences increased by 0.6% on a monthly basis, the fastest since 1987.

The cost of motor vehicle repairs rose a record 4.3% compared to January, and an index of personal care products saw an unprecedented 1.2% rise.

Hotel and airline ticket prices rebounded in February after economic activity slowed in December and January on the back of omicrons.